May 17 (Bloomberg) -- New York state owes $72.2 billion for
promised health benefits for retired government workers, a 29
percent increase from the year before, according to a financial
statement.

Future retiree benefit costs rose by $16.3 billion in the
fiscal year ended March 31, exceeding the state’s outstanding
debt by more than $15 billion, according to the statement
published last week. New York City’s retiree health-care
liability was $84 billion for the fiscal year ended June 30.

“The broader question is health-care costs generally,”
said Stephen Madarasz, a spokesman for the Civil Service
Employees Association, New York’s biggest public-worker union.
“That’s a source of concern for people around the country.”

Most states cover retiree health benefits on a pay-as-you
go basis. They don’t set aside money annually to pre-fund the
obligations, as they do with pensions. Last year, New York, the
third-biggest U.S. state by population, spent $3.3 billion on
health care for active and retired employees as health-care
spending rose 6 percent.

Trust Fund

In 2008, Comptroller Thomas DiNapoli proposed creating
trust funds to help the state and local governments plan for the
cost of health-care coverage for retirees. Legislation creating
the trusts passed the Senate in 2010. It didn’t pass the
Assembly.

“This is an expense we need to plan for more effectively
than we have in the past,” DiNapoli said in an e-mailed
statement. “There are no easy answers, but a first step is
establishing a trust account to pre-fund these obligations.”

Governor Andrew Cuomo and the CSEA agreed to a five-year
labor contract last year that increased employees’ health-care
contributions.

For workers classified as a salary grade 10 or above, the
state will pay 69 percent of family coverage compared with 75
percent under the old plan. For Grade 9 employees and below, the
New York pays 73 percent compared with 75 percent. The change
will save taxpayers $764 million over five years.

A group representing 40,000 retirees sued after the Cuomo
administration applied the contract changes to existing
retirees, saying the move violates civil-service law and the
state and U.S. constitutions.

Retiree health-care liabilities amount to $240 billion for
New York state, New York City, local governments and public
authorities, according to E.J. McMahon, a senior fellow at the
Manhattan Institute for Policy Research in New York, which
supports lower taxes and less government spending.

Some upstate cities such as Syracuse and Rochester, which
have been losing population over the last 30 years, spend more
on retiree health benefits than they do on current employees,
McMahon said.

“This is a rope around your neck,” he said. “Retiree
benefits are very rare in the private sector and you’re talking
about a class of people who retire early.”